FX Trading and Exchange Rate Dynamics

  title={FX Trading and Exchange Rate Dynamics},
  author={Martin D. D. Evans},
I examine the sources of exchange rate dynamics by focusing on the information structure of FX trading. This structure permits the existence of an equilibrium distribution of transaction prices at a point in time. I develop and estimate a model of the price distribution using data from the Deutsche mark0dollar market that produces two striking results: ~1! Much of the short-term volatility in exchange rates comes from sampling the heterogeneous trading decisions of dealers in a distribution… CONTINUE READING
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